by Daniel Brouse
Mardch 23, 2025
Recent data indicate that U.S. manufacturing activity has declined to its lowest level since 2020. The S&P Global U.S. Manufacturing Purchasing Managers’ Index (PMI) fell to 49.8 in March 2025 from 52.7 in February, signaling contraction in the sector. Several factors contribute to this downturn, including trade policies and tariffs, regional declines, reduced new orders, and inflationary pressures. The current administration’s trade policies, such as a newly announced 25% “secondary tariff” on countries purchasing oil and gas from Venezuela, have disrupted supply chains and increased production costs. Specific regions, like New York State, have seen steep declines in factory activity, with the Empire State manufacturing index dropping by nearly 26 points to a negative reading of 20.0 in March due to sharp decreases in new orders and shipments. Additionally, the national New Orders Index fell back into contraction territory at 48.6 percent after three months of expansion, reflecting weakening demand. Inflationary pressures have further exacerbated the situation, as manufacturers face rising input costs, making production less profitable. These combined factors have led to the sector’s worst performance since 2020.
This is some of the first hard data confirming an economic downturn. While soft data, such as consumer sentiment and inflation expectations, have been signaling a significant slowdown with likely higher inflation, the latest manufacturing numbers now validate these concerns. The combination of slowing growth and rising inflation has heightened market uncertainty regarding the Federal Reserve’s next move on interest rates. The stock market has been hoping this will prompt rate cuts, leading to higher stock prices. However, the bond market anticipates fewer rate cuts and persistent inflation, resulting in rising interest rates.
Rising inflation, increasing interest rates, and declining domestic manufacturing directly contradict the Trump administration’s claims about the effectiveness of its economic policies. While the administration has promoted its policies as pro-growth, aimed at strengthening American manufacturing and controlling inflation, the data tell a different story. The combination of trade tariffs, supply chain disruptions, and rising production costs has put pressure on manufacturers, leading to contraction in the sector. Meanwhile, inflation remains elevated, forcing the Federal Reserve to keep interest rates higher for longer, which further dampens economic activity. These economic trends suggest that, rather than fostering growth and stability, the administration’s policies may be contributing to a stagflationary environment—where rising prices and slowing growth create increased uncertainty for businesses and consumers alike.